TMI Blog2023 (12) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance is that it is an afterthought and claim is not genuine. Allegation of ld AO is that agreement between assessee and Emtelle was an afterthought. Assessee has shown the annual accounts, agreement, claim of payment, certificate of banker, business justification, disclosure of compensation in annual accounts of recipient company shows that it is not an afterthought. Hence, we confirm appellate order of ld CIT (A). Thus, all the grounds in appeal of ld AO are dismissed. - SHRI PRASHANT MAHARISHI, AM AND SHRI SANDEEP SINGH KARHAIL, JM For the Assessee by : Shri. Sanjay N. Kapadia CA For the Revenue by : Shri. Kishor Dhule, CIT DR ORDER PER PRASHANT MAHARISHI, AM: 01. This appeal is filed by The Deputy Commissioner Of Income Tax, Central Circle 6 (1), Mumbai [The Ld AO] against appellate order passed by The Commissioner Of Income Tax, (Appeals) 54, Mumbai (The Learned CIT A) for assessment year 2017 18 dated 17/ 03 /2023 wherein the appeal filed by the assessee against the assessment order passed under section 143 (3) of The Income Tax Act, 1961 (The Act) dated 30/12/2019 by the learned assessing officer, was allowed. 02. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etter prices of the property at ₹ 1523.90 per square meter from the present buyers, as a commercial prudent businessmen, assessee cancelled the earlier regular agreement entered into with Emtelle India private limited by compromise compensation paid of ₹ 148.50 per square meter charged to the profit and loss account as deductible expenditure. Copy of agreement as well as the deed of settlement for cancellation was submitted before the AO. Assessee submitted that assessee is in the business of land development and has purchased parcel of land at Gujarat which could not be developed and sold due to various commercial and regulatory reasons and therefore the activity could not take of as expected. Assessee acquired the land in the year 2008 but till 2016 such land could not be converted into non-agricultural land and remained in the name of sellers to assessee. Approximately 10,77,143 m of land was acquired by assessee as non-agricultural land disclosed in the annual accounts of the company as stock in trade. The Emtelle India Pvt Ltd approached the assessee with a view to acquire the above land for setting up a larger industrial plant/factory for its operation. This comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on 10/1/2017 by which the assessee paid compensation of ₹ 159,955,736/ in October 2017. 08. Thus claim of the assessee is that in the above circumstances an agreement entered into with the above company is a valid, post dated cheques are also a valid promised consideration, agreement to sale can be entered against a consideration promised to be paid and further all the transactions are bona fide and verifiable between non related parties. Those are also valid in terms of the provisions of Indian Contract Act 1872 and The Transfer Of Property Act 1882. The assessee also relied on several judicial precedents on this issue of several honourable High Courts. Thus the assessee stated that the above compensation is allowable under section 37 (1) of the act as it is a revenue expenditure incurred wholly and exclusively in the business of real estate development by the assessee, relying upon several judicial precedents such as i. Gopal Das estate and housing private limited versus CIT 103 taxmann.com 334 (Delhi) ii. CIT versus Lubrizol India Ltd 37 taxmann.com 294 (Bom) iii. Deputy Commissioner of income tax versus Vatika townships private limited (36 taxmann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issued to the assessee by that company, assessee gave the numbers of the cheque, and date of such cheque, it was submitted that such cheques were issued to that company by its bankers on 17 October 2015. The agreement was entered into on January 4, 2016. The assessee substantiated this by placing certificate from the bankers of the company. Regarding the claim of the AO that this agreement is an afterthought, it was submitted that the agreement dated 4 January 2016 is executed on non judicial stamp paper dated 13 October 2015, Assessee also referred to the annual accounts of the assessee, which contains the note with respect to the agreement executed by the assessee with the above company in annual accounts for financial year 2015 16 in which the reference of the agreement dated 4 January 2016 is also made. Thus it was claimed that i. transactions of payment of compensation by the assessee to the above company is a genuine transaction having a valid consideration which was intended to be executed with the consent of both the parties, ii. cheques issued to the assessee by the company on the date of signing of the agreement are in the nature of post dated cheques, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Aggrieved by the order of the learned CIT A the learned assessing officer is in appeal before us. The learned CIT DR submitted that:- i. agreement between the parties is without any consideration ii. agreement is between the related parties iii. agreement is an afterthought iv. there was no reference when the property was sold to the other buyers that there is a pre-existing right of the company to whom compensation is paid v. there was no disclosure in the annual accounts of the buyer to show that any right or right in the property is owned Accordingly it was submitted that the learned CIT A has deleted the disallowance incorrectly which was disallowed by the learned AO giving so many reasons. It was stated that the agreement is an afterthought and the claim of the assessee is not genuine. 013. The learned authorized representative submitted a paper book containing 179 pages wherein several judicial precedents were cited and annual accounts of the company to the compensation paid along with the computation of total income as well as the annual accounts of the assessee along with the other documents for submitted. He mostly relied on the submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho have tried to raise dispute to the right of the company over companies land. The matters are under court, arbitration as per the order of the honourable city civil Court. 2.21 The company had earlier planned to development / redevelopment of land at village sachana at the time of acquisition of such land. However, on account of non-receipt of requisite permissions over the period and on account of nonviability of such projects due to recession in real estate sector in sachana vicinity, the company has abandoned the said project during the year under review. The similar view was envisaged by the statutory auditor in the past. It is needless to mention that an abandoned operation would be discontinuing operation as per A as 24 accordingly the other project expenditure incurred amounting to ₹ 442,627,870/ has been written off during the year to present true and fair view. 2.22 The company has entered into agreement for sale without possession with Emtelle India Ltd of entire non-agricultural land. The management was able to get much better price of ₹ 1523.90 per square meter from present buyer and therefore for the purpose of commercial prudence, the manageme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and the company to whom the compensation is paid. There is no dispute that compensation has already been paid by the assessee and it has been recorded as an income by the recipient. It is also not in dispute that position was not given to that party to whom compensation was paid. It is also not necessary that such agreement needs to be registered agreement. Had post-dated cheques been deposited by the assessee, were dishonored, then in that case the agreement did not have any evidentiary value. However, that eventually has not happened. The issue is that the consideration is by post-dated cheques, Those cheques were never encashed by the assessee. Subsequently the agreement was cancelled and that company was paid compensation by the assessee. In such case, if the post dated cheques, if deposited by the assessee as a consideration, and such post-dated cheques are not honoured, then naturally the agreement to sale would have been without consideration. Prior to that, the agreement was cancelled and because assessee is getting more consideration, it paid compensation to the party who had right of enforcing the assessee of performance of that agreement. Issue is whether the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is only ₹ 148 .50 per m . 023. The notes on accounts of the assessee shows that assessee has also right over certain land but same are also disputed. The assessee does not have to disclose such an incident. Therefore nature of the business supports the claim of the assessee, as such transaction are usual. 024. Thus, in the above circumstances, it cannot be said that the company to whom the compensation has been paid did not have any right and therefore compensation paid by the assessee is not allowable. The fact shows that there is an agreement entered into by the assessee with an unrelated party which is documented on a non-judicial stamp paper and sale price is agreed therein. The AO has not examined that party. The learned AO cannot deny that if that party had asked for the specific performance of that agreement, the consideration much less per m would have been received by the assessee, against the actual sale consideration offered of ₹ 1530.97 per square meter. If that be the situation then the income offered by the assessee on the sale of the above land to the extent of ₹ 1300 per square meter would not have been offered for taxation by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
